833 F.2d 1342 (9th Cir. 1987), 86-1733, Mozart Co. v. Mercedes-Benz of North America, Inc.

Docket Nº:86-1733, 86-2156.
Citation:833 F.2d 1342
Party Name:The MOZART COMPANY, a corporation, Plaintiff-Appellant, v. MERCEDES-BENZ OF NORTH AMERICA, INC., a corporation, Defendant-Appellee.
Case Date:December 09, 1987
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1342

833 F.2d 1342 (9th Cir. 1987)

The MOZART COMPANY, a corporation, Plaintiff-Appellant,

v.

MERCEDES-BENZ OF NORTH AMERICA, INC., a corporation,

Defendant-Appellee.

Nos. 86-1733, 86-2156.

United States Court of Appeals, Ninth Circuit

December 9, 1987

Argued and Submitted May 13, 1987.

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Moses Lasky, Lasky, Haas, Cohler & Munter, San Francisco, Cal., for plaintiff-appellant.

George A. Cumming, Jr., Brobeck, Phleger & Harrison, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before SNEED, ALARCON and CANBY, Circuit Judges.

SNEED, Circuit Judge:

Mozart Co. (Mozart), an auto parts distributor and manufacturer, alleged various antitrust violations by Mercedes-Benz of North America, Inc. (MBNA), arising out of MBNA's franchise agreements with its dealerships. The agreements required each franchisee to deal exclusively in replacement parts supplied by MBNA. Following an eleven-week jury trial, the jury rendered a special verdict, finding that, although MBNA had violated the Sherman Act by way of a tying arrangement, there was a business justification for the conduct. The district court entered judgment for MBNA without submitting Mozart's other claims to the jury. Mozart appeals the district court's judgment that it take nothing, and also appeals the court's award of costs to MBNA. We affirm.

I.

FACTS AND PROCEEDINGS BELOW

Defendant-appellee MBNA has been the exclusive United States distributor of Mercedes-Benz automobiles since 1965. MBNA is a wholly-owned subsidiary of Daimler-Benz Aktiengesellschaft (DBAG), the German manufacturer of Mercedes automobiles and their replacement parts. Daimler-Benz of North America, Inc. (DBNA) is the exclusive United States importer of DBAG products.

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MBNA markets its passenger cars and genuine and approved replacement parts through approximately 400 franchised dealerships. Each dealer becomes party to a standard written Dealer Agreement, the second part of which contains numerous "Standard Provisions." Paragraph 9C of that part of the agreement provides:

Dealer shall neither sell or offer to sell for use in connection with MB passenger cars nor use in the repair or servicing of MB passenger cars any parts other than genuine MB parts or parts expressly approved by DBAG if such parts are necessary to the mechanical operation of such MB passenger cars.

Part one of the Dealer Agreement defines "MB parts" as "parts, accessories, components, assemblies, and optional equipment for MB passenger cars supplied by MBNA, DBAG, or DBNA."

In January, 1982, plaintiff-appellant Mozart, successor in interest to Eurasian Automotive Products, Inc., a wholesale automotive parts distributor, brought suit against MBNA for alleged violations of Secs. 1 and 2 of the Sherman Act, and Sec. 3 of the Clayton Act, 15 U.S.C. Secs. 1, 2, and 14. Mozart based its case on Paragraph 9C of the Dealer Agreement between MBNA and each Mercedes-Benz franchised dealer. It contended that it constituted a per se tying violation of 15 U.S.C. Secs. 1 and 14. Mozart alleged additionally that MBNA conspired with the franchised dealers to boycott independent replacement parts distributors, in further violation of Sec. 1, and also that MBNA attempted to monopolize the sale in the United States of replacement parts usable in Mercedes automobiles in violation of Sec. 2. The complaint charged improper conduct between the years 1975 and 1979.

In September, 1984, the district court denied the parties' cross-motions for summary judgment in a published opinion and order. Mozart Co. v. Mercedes-Benz of N. Am., Inc., 593 F.Supp. 1506 (N.D.Cal.1984). The court found that the Mercedes passenger car and its replacement parts were separate products tied together by the terms of Paragraph 9C of the MBNA Dealer Agreement, and that the tying arrangement affected a substantial amount of interstate commerce. Id. at 1523. The matter proceeded to trial on the issues of: (1) whether MBNA had sufficient economic power in the tying product market to restrain competition in the tied product market; (2) whether MBNA had a legitimate business justification for the tying arrangement; and (3) the conspiracy and monopoly claims. Id. at 1523-24.

Trial began August 6, 1985. At the close of Mozart's case in chief, the court granted MBNA's motion for a directed verdict on the conspiracy to boycott claim. At the close of all the evidence, the court submitted the case to the jury only under the Sherman Act Sec. 1 tying claim. It declined to give to the jury the attempted monopolization and Clayton Act Sec. 3 claims. The jury returned a special verdict, finding that MBNA had violated Sherman Act Sec. 1 under both the per se test and the Rule of Reason Test, but that MBNA had a business justification for its tying arrangement. The district court untangled matters by determining that MBNA had not violated Sec. 1. 1 The court denied Mozart's motion for judgment notwithstanding the verdict. The district court then directed a verdict for MBNA on the Clayton Act Sec. 3 and Sherman Act Sec. 2 claims. On November 20, 1985, the court rendered its final judgment that Mozart take nothing. Mozart timely filed a notice of appeal. On June 2, 1986, the district court taxed costs of $110,877.23 against the plaintiff. Mozart also filed an appeal from this post-judgment order.

As indicated above, we affirm. To do so we need address in depth only appellant's contentions that the district court erred in refusing to invoke collateral estoppel as appellant insisted it should and that the business justification defense was inapplicable as a matter of law. First, however, we shall explain why these two issues are controlling in our view.

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II.

THE PER SE TYING STANDARD

In Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), a bare majority reaffirmed the per se rule against tying. 2 The majority opinion concluded that it was "far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition." Id. at 9, 104 S.Ct. at 1556. Three elements are necessary to establish a per se illegal tying arrangement: "(1) a tie-in between two distinct products or services; (2) sufficient economic power in the tying product market to impose significant restrictions in the tied product market; and (3) an effect on a non-insubstantial volume of commerce in the tied product market." Robert's Waikiki U-Drive, Inc. v. Budget Rent-A-Car Sys., 732 F.2d 1403, 1407 (9th Cir.1984). As stated previously, the district court determined as a matter of law that the Mercedes passenger car and its replacement parts were separate products tied together by the terms of paragraph 9C of the MBNA Dealer Agreement, and that the tying arrangement affected a substantial amount of interstate commerce. 593 F.Supp. at 1523. The market power issue, the second element of the per se standard, was submitted to the jury, and the jury found that MBNA possessed the requisite power in the tying product, the Mercedes passenger car.

The majority in Hyde, rather than abandoning the per se rule against tying, chose to limit antitrust liability for tie-ins by insisting on a showing of actual market power in the tying product. 466 U.S. at 13-17, 104 S.Ct. at 1558-61. Tying arrangements receive per se condemnation "when the seller has some special ability--usually called 'market power'--to force a purchaser to do something that he would not do in a competitive market." Id. at 13-14, 104 S.Ct. at 1558-59. The primary purpose of the rule against certain tying arrangements is to stop the extension of market power from one product to another. 3 Id. at 13 & n. 19, 104 S.Ct. at 1558 & n. 19. Such extension of power is impossible unless the seller has substantial market power in the tying product.

The instructions employed in submitting this issue to the jury were flawed, however. That flaw pertained to the "market power" that the defendant must possess in the tying product to justify the invocation of the per se standard. The required "market power" must be sufficient "to force a purchaser to do something he would not do in a competitive market." 466 U.S. at 14, 104 S.Ct. at 1559. Such "forcing" is the equivalent of increasing the price of the tying product to increase profits. Id. at 27 n. 46, 104 S.Ct. at 1566 n. 46. Such power is the hallmark of monopoly power, viz., the ability to increase price by restricting output.

In Hyde, the Court identified three sources of market power. First, when the

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government has granted the seller "a patent or similar monopoly over a product, it is fair to presume that the inability to buy the product elsewhere gives the seller market power." 466 U.S. at 16, 104 S.Ct. at 1560 (citing United States v. Loew's, Inc., 371 U.S. 38, 45-47, 83 S.Ct. 97, 102-03, 9 L.Ed.2d 11 (1962)). The second is when "the seller's share of the market is high." Id. 466 U.S. at 17, 104 S.Ct. at 1560 (citing Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 611-13, 73 S.Ct. 872, 881-83, 97 L.Ed. 1277 (1953)). The third is when "the seller offers a unique product that competitors are not able to offer." Id. Mozart's theory of this case is that the Mercedes automobile is sufficiently unique to confer economic power on MBNA in the tying product.

The district court properly instructed the jury that the Mercedes-Benz franchise trademark and the Mercedes-Benz automobiles together constitute the tying product. Reporter's...

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